Thursday, November 20, 2014

The (somewhat) good news: according to the newly-released 2013 American Community Survey (ACS), housing cost burdens declined for the third straight year in 2013. Last year, 39.6 million households spent more than 30 percent of their income on housing, down from 40.9 million in 2012 and a peak of 42.7 million in 2010. Still, just over a third of U.S. households (34 percent) were cost burdened in 2013, including about a quarter of all homeowners (26 percent) and half of all renters (49 percent) (Figure 1).

Notes: Moderate (severe) burdens are defined as housing costs of 30-50% (more than 50%) of household income. Households with zero or negative income are assumed to have severe burdens, while renters paying no cash rent are assumed to be without burdens.

Source: JCHS tabulations of US Census Bureau, American Community Surveys.

Last year’s decline in the number of cost-burdened households, however, occurred almost exclusively among homeowners. Nearly 19 million owners were cost burdened in 2013, down from 20.3 million in 2012. The number of owners with severe cost burdens – paying more than 50 percent of income for housing – also slid, from 8.5 million in 2012 to 8.1 million in 2013. The easing of owner cost burdens is due in part to a dramatic decline in median homeowner housing costs. After surging during the housing bubble, inflation-adjusted owner costs have dropped to about 2.5 percent below their 2001 level (Figure 2). Owner burdens are also down due to a significant reduction in the overall number of homeowners – fully 294,000 fewer households in 2013 than 2012. This decline in the number of homeowners for the third straight year (and the fifth time since 2007) suggests that many burdened owners dropped out of ownership, moving into the costly rental market.

Notes: Median costs and incomes are real values adjusted using the CPI-U for All Items. Owner housing costs are first and second mortgage payments, property taxes, insurance, homeowner association fees, and utilities. Renter housing costs are cash rent and utilities.Source: JCHS tabulations of US Census Bureau, American Community Surveys.

With many exiting ownership and new households forming, the number of renter households was up by 615,000 in 2013. Indeed, a major reason why renter cost burdens remain persistently high is that the overall number of renters continues to grow. Despite a slight decline in cost-burdened share, the sharp growth in renter households pushed the number with cost burdens up for the twelfth consecutive year, reaching 20.8 million in 2013. Of these, about 11.2 million were severely burdened in both years. Cost pressures also continue to drive burdens higher as over the past decade, renter costs have largely gone up, while renter incomes have declined. As Figure 2 shows, real median renter costs in 2013 were about five percent higher than in 2001 while, even with modest income gains in 2013, median incomes were nearly 11 percent lower. If past patterns hold and income growth remains stagnant, rental costs continue to climb, and affordable ownership stays out of reach, rental cost burdens will only continue to grow.

Tuesday, November 4, 2014

According to
the Federal Reserve Bank of New York, aggregate mortgage debt stood at $8.6 trillion in Q2 2014, down from its peak of $10.0 trillion in Q3 2008. Many have
interpreted this decline as a sign that consumers have become chastened by the
Great Recession’s bursting of the housing bubble and are voluntarily paying
down their mortgage debt to more sustainable levels. For those thinking in such terms, I recommend
a paper further analyzing the same Consumer Credit Panel data that produces
the aggregate debt estimates just cited. In a masterful exercise, Fed economist Neil Bhutta
concludes that the recent drop in mortgage debt has more to do with shrinking
inflows than with expanding outflows, including mortgage defaults:

"While few borrowers, compared to prior
years, have been increasing their mortgage debt, they also do not appear to be
aggressively paying down their mortgages… It is therefore possible that many borrowers might
actually be credit constrained (they would like to increase their debt, but cannot
find a willing lender …).” (p. 3)

A critical
limitation of the Fed’s Consumer Credit Panel data is that it includes very
limited demographic information (only the age of the borrower). But Bhutta’s
findings are supported by a recently released Census Bureau report on the growing wealth inequality in the U.S. that reports on trends in mortgage debt broken down by a wide
variety of household demographic characteristics. These data, collected by the Survey of Income
and Program Participation (SIPP), clearly show a post-Great Recession decline
in the share of young households with home debt (Figure 1) – consistent with a dramatic slowing of movement into
first-time homeownership. At the same
time, the report also shows that the percentage of older households with home
debt has continued to increase. Since
2000, the share of homeowners aged 65-69 with home debt increased by almost 33
percent, and the share of those aged 70-74 increased by almost 65 percent. This trend is consistent with today’s older
owners failing to pay down their mortgages as diligently as did earlier
generations. Both equity extractions to
garner cash to pay for other expenditures, and simple refinancing and extending
the payment period to lower monthly payment costs will slow the pace at which
homeowners pay off their mortgages.

Moreover,
among those households with home debt, overall median debt outstanding has
continued to increase post-Great Recession, albeit at a diminished pace (Figure 2). The increase
in median home debt is especially true among the elderly.Median outstanding home debt for homeowners
aged 65-69 with a mortgage increased by 46 percent between 2000 and 2005, and
another 8 percent between 2005 and 2011.The corresponding figures for 70-74 year old owners with home debt are
18 and 33 percent.This doesn’t
necessarily indicate a recent rise in refinancing activity among these older
households. Rather it likely is attributable to the aging of 60-64 and 65-69
year olds (with higher mortgage debt from the previous periods) into the 65-69
and 70-74 age groups.

Growing
mortgage debt among the elderly is troubling. Declining income later in life is inevitable for most households. With mortgage payments a continuing part of
the monthly household budget, in addition to real estate taxes and the expense
of home repairs, many elderly with high housing cost burdens will need to
postpone retirement or spend less on other needs like food or health care. Fewer will be able to draw on wealth
accumulated through growth in home equity to help pay the bills late in
life. Some will let their homes fall
into disrepair or will be forced to sell their homes when they would prefer to
age in place. This is a trend worth our
continuing attention and concern.

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Drawing from the ongoing research and analysis of the Harvard Joint Center for Housing Studies, Housing Perspectives provides timely insight into current trends and key issues in housing. We dig deeper into the housing headlines to discuss critical issues and trends in housing, community development, global urbanism, and sustainability. Posts are written by staff of the Joint Center, drawing from their wide-ranging knowledge and experience studying housing. We hope you will follow Housing Perspectives, and we welcome your comments.

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